ACA insurance exchanges: How much do they need young adults?

Since the startup of the Affordable Care Act’s (ACA) insurance exchanges, a great deal of media and public attention has focused on the participation rate of young adults. Both supporters and opponents of the law have assumed that without substantial numbers of people in the 18-35 age range enrolling in insurance plans, the exchanges would be forced into a “death spiral” of ever-rising premiums and declining enrollment.

But is that assumption accurate? According to a recent report from The Commonwealth Fund, a health policy think tank, the answer appears to be “not entirely.” Earlier this year The Commonwealth Fund brought together about two dozen health insurance actuaries, health plan representatives, researchers, and federal officials to explore the role of young adult participation in the success or failure of the insurance exchanges. Their conclusion: While young adult participation is important, it is only one factor, and not even the most important one, for determining whether the exchanges will succeed.

(Through the end of January, about 3.3 million young adults had enrolled, accounting for 25% of total enrollment, according to the U.S. Department of Health and Human Services.)

The true key, according to the symposium participants, will be the overall health status of all enrollees in the exchanges. That’s because the ACA allows insurance companies to charge older adults up to three times more than younger adults-less than they were permitted before passage of the ACA but still substantial flexibility. So even if young adult enrollment falls short of projections, it will have less impact on insurers than would overall enrollment that turns out to be less healthy than expected, since insurers are now required to set a single risk pool for each state and can no longer set premiums based on an individual’s health status.

Sara Collins, Ph.DSara Collins, Ph.D, vice president for The Commonwealth Fund’s healthcare coverage and access program, says the enrollment numbers for young adults have been treated in the media and the public as a proxy for the overall state of the risk pool. “There has been no consensus on what the actual rate of participation needs to be to ensure stability. So we wanted to convene a group of experts, including actuaries who are setting premiums for 2014 based on their risk pool expectations, as well as economists and health policy analysts to explore the issue,” she says.

Collins adds that most companies offering plans through the exchanges have their own internal projections for young adult participation. “It’s pretty clear that if there’s lower than expected participation among young adults, when they start looking at 2015 you’re not going to see a jump in premiums to the extent that it will cause people to leave the market. It won’t create a so-called premium death spiral.”

Some other major limitations on the possibility of a premium death spiral in the next few years, according to the meeting participants:

• three risk-sharing programs built into the ACA, designed to lower claims costs and offset insurer losses during the first three years of the exchanges;

• the law’s requirement that health plans justify premium increases of 10% or more;

• the ACA’s medical loss ratio requirement, mandating that plans spend a set percentage of their premiums on medical care; and

• some plans may also hold down premiums by narrowing their provider networks.

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